On June 20, 2011, the U.S. Supreme Court unanimously held that the Clean Air Act, and the authority it confers on the U.S. Environmental Protection Agency (EPA) to regulate emissions of carbon dioxide and other greenhouse gases, “displaces” any federal common law right of state, municipal and private plaintiffs to assert tort claims in the federal courts seeking injunctive relief for alleged harm from greenhouse gas emissions. American Electric Power Co. v. Connecticut, No. 10-174 (2011). Justice Ginsburg authored the Court’s 8-0 opinion. Justice Alito, joined by Justice Thomas, filed an opinion concurring in part and concurring in the judgment. Justice Sotomayor did not participate.

This short memorandum discusses the Court’s decision, the policy and political backdrop leading up to the decision, and the impact that the decision may have on the electric power industry and other stakeholders.

Background

The seeds of the Supreme Court’s decision in American Electric Power were sown early in the first term of President George W. Bush’s presidency. In 2001, when President Bush withdrew from the Kyoto Protocol discussions, his administration made clear that regulation of greenhouse gases would not be at the forefront of the American energy agenda.1 A year later, in 2002, the U.S. sent a climate report to the United Nations that, while acknowledging the harmful effects of global warming, reaffirmed the administration’s policy not to regulate greenhouse gases.2 The Bush Administration’s stance led several groups of plaintiffs concerned about the impact of climate change – including the American Electric Power respondents – to turn to the federal courts and the federal common law of nuisance. In July 2004, eight states, New York City and three nonprofit land trusts3 joined together to file complaints in the U.S. District Court for the Southern District of New York against four electric power companies and the Tennessee Valley Authority (TVA), which (according to plaintiffs) were “the five largest emitters of carbon dioxide in the United States.”4 2011 WL 2437011, at *5. The plaintiffs alleged that the power companies’ carbon dioxide emissions contribute significantly to global warming, thereby endangering lands, habitat, infrastructure and health in violation of the federal common law of interstate nuisance (or, alternatively, of state tort law). The plaintiffs sought an injunction requiring each defendant to cap its greenhouse gas emissions and reduce them by a particular percentage each year for the next ten years.  

The District Court dismissed the lawsuits as presenting non-justiciable political questions, and the plaintiffs appealed. In its decision issued in 2009, the U.S. Court of Appeals for the Second Circuit reversed.5 On the threshold issues of justiciability and standing, the Second Circuit held that the suits were not barred by the political question doctrine and that the plaintiffs had adequately alleged standing under Article III. On the merits, the Second Circuit held that the plaintiffs had stated a claim under the federal common law of nuisance, and that the Clean Air Act did not displace federal common law. The court based its decision in large part on its interpretation of the Supreme Court’s decision in Milwaukee v. Illinois, 451 U.S. 304 (1981) (Milwaukee II), which held that a federal common law right to sue to abate discharge of sewage into Lake Michigan had been displaced by Congress’ adoption of amendments to the federal Clean Water Act creating a regulatory and permitting program for discharges of pollutants into the waters of the United States. To the Second Circuit, the critical factor was not whether the regulatory agency (EPA) had the authority to act, but whether it had in fact acted to address the issue forming the basis of the plaintiffs’ claims. In the words of Justice Ginsburg, in contrast to the situation in Milwaukee II, at the time of the Second Circuit’s decision “EPA had not yet promulgated any rule regulating greenhouse gases, a fact the court thought dispositive.”6 The Supreme Court granted certiorari.

The Decision

The Supreme Court reversed the Second Circuit and remanded the case.

Justice Ginsburg began the Court’s analysis with a summary of the Supreme Court’s previous pronouncement on the law of climate change – its closely divided 2007 decision in Massachusetts v. EPA, 549 U.S. 497 (2007). There, a bare majority (5-4) held that the Clean Air Act authorized EPA to regulate emissions of carbon dioxide and other greenhouse gases. Justice Stevens’ opinion for the majority in Massachusetts describes, instructively and at some length, the policy and regulatory backdrop for the Court’s decision. It is worth summarizing that backdrop briefly to put the Court’s decision in American Electric Power in context.  

After reviewing the history and scientific understanding of the climate change issue, Justice Stevens noted that in October 1999, during the latter part of the Clinton Administration’s second term, a large group of private organizations filed a rulemaking petition asking EPA to regulate greenhouse gas emissions from new motor vehicles under Section 202 of the Clean Air Act. The previous year, EPA’s General Counsel had issued a legal opinion that EPA had the power to regulate carbon dioxide emissions, although it had not yet exercised that authority. EPA requested public comment on the petition, but did not take any further action until after the Bush Administration assumed office. In September 2003, EPA denied the rulemaking petition, stating (contrary to the opinion of the Clinton EPA) that it lacked statutory authority to regulate greenhouse gases, and, further, that it would be unwise for EPA to exercise any such authority assuming it existed. 549 U.S. at 511. The private organizations that had initiated the original 1999 rulemaking petition, joined by the State of Massachusetts and other state and local governments, sought review in the U.S. Court of Appeals for the D.C. Circuit, which denied review, and the Supreme Court granted certiorari.  

The Massachusetts Court held that EPA’s denial of the rulemaking petition rested on a misreading of the Clean Air Act. According to the Court, greenhouse gases qualify as “air pollutants” within the meaning of the Act, and are therefore subject to EPA’s regulatory reach. The Court went on to hold that EPA had not offered any “reasoned explanation” for its refusal to set greenhouse gas emission standards, and “must ground its reasons for action or inaction in the statute.” Id. at 535. The Court reversed the Court of Appeals, and remanded the case.

After reviewing the Court’s decision in Massachusetts, Justice Ginsburg’s opinion turned to a discussion of the regulatory response. In short, EPA (with President Obama now in the White House) undertook to regulate greenhouse gases. In December 2009, EPA concluded that greenhouse gas emissions from motor vehicles and other “anthropogenic emissions” were contributing to global warming and consequent dangers associated with rising sea levels, extreme weather events, drought and destruction of ecosystems.7 EPA and the Department of Transportation subsequently issued rules regulating emissions from motor vehicles, and EPA began phasing in “best available control technology” regulations for facilities emitting greenhouse gases. Finally – and of particular relevance to the Court’s decision in American Electric Power – EPA initiated a rulemaking under Section 111 of the Clean Air Act, 42 U.S.C. § 7411, to impose regulatory limits on greenhouse gas emissions from new, modified, and existing fossil-fuel fired power plants. Pursuant to a settlement reached between EPA and the Massachusetts plaintiffs in December 2010 (and modified in June 2011), EPA has agreed to issue its proposed rule by September 30, 2011, and a final rule by May 26, 2012.8

The Court then turned to the issues before it. On the issue of justiciability and standing, the Court split 4-4, which had the effect of affirming the Second Circuit’s exercise of jurisdiction.9  

On the merits, the Court opened its discussion with a brief review of the development of federal common law, both generally and as applied to actions to address interstate pollution.10 After summarizing the parties’ dispute over whether a federal common law of nuisance theory could apply conceptually to the plaintiffs’ novel claims11, the Court stated that the dispute was “academic” because “[a]ny such claim would be displaced by the federal legislation authorizing EPA to regulate carbon-dioxide emissions.”12 Citing Milwaukee II and other of its decisions, the Court stressed that the test is whether the congressional statute at issue “speaks directly to the question at issue.” Here, the Court reasoned, its decision in Massachusetts made plain that emissions of greenhouse gases such as carbon dioxide “qualify as air pollution subject to regulation under the [Clean Air] Act”, and that statute therefore “speaks directly” to emissions of carbon dioxide from the defendants’ plants.13 The Court went on to discuss the statutory scheme embodied in § 111 of the Act and the broad regulatory authority it grants to EPA, and noted again that EPA was currently engaged in a rulemaking to set standards for greenhouse gas emissions from fossil-fuel fired power plants. The Court concluded: “The Act itself thus provides a means to seek limits on emissions of carbon dioxide from domestic power plants – the same relief the plaintiffs seek by invoking federal common law. We see no room for a parallel track.”14

The Court rejected the plaintiffs’ argument (and the Second Circuit’s holding) that federal common law is not displaced until EPA actually exercises its regulatory authority by setting final standards for power plant emissions. “The critical point,” stated the Court, “is that Congress delegated to EPA the decision whether and how to regulate carbon-dioxide emissions from power plants; the delegation is what displaces federal common law.”15 The Court went on to note that if EPA were to decide, in the exercise of its expert discretion, not to regulate greenhouse gas emissions at the conclusion of its current rulemaking, “the federal courts would have no warrant to employ the federal common law of nuisance to upset the agency’s expert determination.”16 The expert agency (here, EPA), the Court stressed, is in a much better position than a federal court to be the “first decider” of complex policy issues requiring informed expertise and the balancing of competing environmental, energy and economic interests, with the courts playing the secondary role of judicial review.17  

In the concurring opinion filed by Justice Alito, and joined by Justice Thomas, Justice Alito stated that he concurred in the judgment and agreed with the Court’s displacement analysis “on the assumption” that the interpretation of the Clean Air Act adopted by the majority in Massachusetts is correct.18 In the 5-4 Massachusetts decision, Justices Alito and Thomas were in the dissenting bloc, along with Chief Justice Roberts and Justice Scalia.19  

Looking Forward

The immediate impact of the Court’s decision in American Electric Power is clear: it removes the threat to owners and operators of power plants posed by tort-based climate change litigation. Further clarity should arrive in the form of EPA's proposed rulemaking to regulate greenhouse gas emissions, due by the end of September 2011, followed by an eight month public comment period and a final rule due near the end of May 2012.

The clarity and predictability furnished by the Court’s decision and the EPA rulemaking could be scrambled in unpredictable ways, however, by the vagaries of politics. As the discussion above makes clear, it is no secret that the Democratic and Republican parties have divergent views about climate change and the appropriateness of regulating greenhouse gas emissions. In response to the decision by the Obama Administration EPA to proceed with its greenhouse gas rulemaking, in February 2011 the Republican-controlled House of Representatives voted to bar the EPA from regulating greenhouse gas emissions.20 Not surprisingly, the Democratic-controlled Senate rejected the House bills restricting EPA’s regulatory authority.21 It appears very unlikely that EPA’s regulatory authority will be disturbed by any further legislative initiative in advance of the November 2012 Presidential and Congressional elections.  

It also appears likely that EPA’s final rulemaking anticipated in May 2012 will remain the law of the land if President Obama is re-elected. If, however, the Republicans not only retain control of the House but re-take the White House and the Senate, they would certainly be in a position – and could very well decide – to revive their legislative efforts to strip EPA of its authority to regulate greenhouse gases. If Congress were to pass such legislation and a Republican President signed it into law, the rationale for the Court’s decision in American Electric Power would disappear, and industry could face a new wave of tort claims from plaintiffs asserting the federal common law of nuisance.22